20 February 2018
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Shaking up Singapore's transfer pricing regime

Business Times
08 Feb 2018
See Jee Chang and Lee Siew Ying

The IRAS has sent a clear signal that it is moving away from a guidance-based approach to a formal transfer pricing regime

When the Inland Revenue Authority of Singapore (IRAS) published the first edition of the Singapore Transfer Pricing (TP) Guidelines in 2006, it was a concise circular of just 42 pages. The overall messaging of the circular was friendly - it laid out the key transfer pricing concepts and guiding principles, recommending (but not mandating) taxpayers to prepare transfer pricing documentation to reduce the risk of double taxation.

Although the business community took notice - it was, after all, a major announcement from the IRAS - not many taxpayers viewed transfer pricing as a critical issue at the time, and did not see a pressing need to prepare the documentation since it was not mandatory.

A decade later, the Singapore TP Guidelines' fourth edition has 113 pages - almost three times the number of pages compared to the first edition. In 2017, the IRAS also introduced significant legislative amendments to the Income Tax (Amendment) Act to make transfer pricing documentation mandatory and impose penalties for non-compliance with effect from the Year of Assessment 2019. Through these actions, the IRAS has sent a clear signal that it is moving away from a guidance-based approach to a formal transfer pricing regime.

This time, it was not just the businesses that sat up. The recent changes to the Singapore transfer pricing regime have surprisingly also attracted comments from outside the business community.

In developed countries, transfer pricing has been particularly marked by tax authorities as the key modus operandi for multinational companies (MNCs) to shift substantial profits from high-tax jurisdictions to low-tax ones.

The numerous changes made by the IRAS to enhance the Singapore TP Guidelines over the years, and the recent legislative changes are part of IRAS's continued efforts and focus on transfer pricing compliance in Singapore. These changes also help Singapore achieve greater alignment with the transfer pricing action items under the Organisation for Economic Cooperation and Development's (OECD) Base Erosion and Profit Shifting (BEPS) initiative.

Businesses have mixed reactions to the step-up in compliance requirement for transfer pricing documentation. On the one hand, businesses generally understand that the documentation serves as robust and useful evidence to demonstrate to tax authorities that related-party transactions are conducted at arm's length. Now that the documentation is mandatory, businesses will be more mindful to prepare and maintain them, which ultimately benefits the businesses since the documentation could help in cross-border tax disputes that may arise as they expand overseas.

On the other hand, there is an additional compliance cost that could be a concern, especially for smaller businesses. In this regard, the IRAS has provided additional thresholds to reduce the compliance burden for smaller businesses; that is, only businesses with gross revenue exceeding S$10 million and significant related-party transactions are required to prepare transfer pricing documentation.

Businesses that are required to prepare the documentation will need to continue with it indefinitely unless specifically exempted from doing so. The current Singapore TP Guidelines and legislation do not offer further guidance on this but it is understood that the IRAS will be providing updated guidelines with examples to illustrate in due course. This means that businesses will need to keep abreast of these developments, not only to ensure that they comply with the latest regulations but also to avail themselves to relevant exemption thresholds so as to minimise their compliance cost.


In the past, news on changes to the transfer pricing regime in Singapore did not attract much public opinion. This is not surprising as most viewed such changes as impacting only corporate businesses and not the man on the street. However, the increased media attention and activist groups' interest in BEPS globally have resulted in political interest in tax reform, and the waves have also been hitting Singapore's shores.

For example, when the recent Income Tax (Amendment) Bill 2017 was read and debated in Parliament on Oct 2, 2017, Louis Ng Kok Kwang, Member of Parliament for Nee Soon, singled out the changes to the transfer pricing legislation. He asked if the IRAS will be providing reasons for determining that a transaction was not conducted at arm's length, and sought the Minister for Finance to also consider introducing a safe harbour margin for intercompany guarantees in addition to the existing indicative loan margin for related-party loans. Indranee Rajah, Senior Minister of State for Finance, responded that the IRAS will take this into account in its periodic review of the transfer pricing guidelines.

Mr Ng also called for the imposition of personal liability on the officers of the company who fail to comply with transfer pricing documentation requirements, as he deemed this to be a more effective method to ensure compliance. He also proposed that higher penalties be imposed for companies that provide false or misleading transfer pricing documentation, to reflect the higher degree of culpability. In response, Ms Rajah said that IRAS will monitor businesses' behaviours after the implementation of the TP Guidelines and evaluate the effectiveness of the penalties. If need be, the IRAS will strengthen them.

One thing is certain - transfer pricing documentation is now a necessity for both businesses and the general public. A robust and contemporaneous transfer pricing documentation serves to demonstrate, to the tax authorities and the general public alike, that businesses have been above board in their related-party transactions. The general public can then be assured that businesses contribute their responsible share of taxes, helping to fund the delivery of public services and support the country's development.

As expectations from the general public for tax transparency evolves, MNCs that are perceived as not paying their fair share of taxes are increasingly put into the spotlight. "Tax shaming" has become very real, and businesses would need to monitor their reputational risk arising from the potential impact.

As the scrutiny on transfer pricing practices is not likely to go away any time soon, businesses should put in place measures - beginning with preparing transfer pricing documentation - to proactively deal with this new environment.

  • The writers are respectively transfer pricing leader and tax senior manager at Deloitte Singapore. The views expressed are their own.

Source: Business Times © Singapore Press Holdings Ltd. Permission required for reproduction.